Tuesday, April 17, 2012

Bloomberg News Elementary Confusion on Supply and Demand

Bloomberg news is out with an editorial calling for a higher minimum wage:
Raising the minimum wage won’t entirely solve the problem of anemic incomes, but it would help.
This, of course, ignores the basics of economics. An understanding of supply and demand economics teaches that if you raise the price of any product above the market clearing price, quantity demanded goes down. This holds just as much for wages as it does for any other product or service.

But Bloomberg tells us that wages defy gravity and float wherever Congress decrees:

 The argument is that it will hurt the very people it was meant to help by forcing employers to cut jobs, raise prices or both. They point to studies that minimum-wage increases hurt teenagers, because young workers typically get minimum-wage jobs, which become scarce when employers are forced to raise salaries. 
But a wave of new economic research is disproving those arguments about job losses and youth employment. 
Oh yeah, and I have a fog making machine in San Francisco that I'd like to sell to the Bloomberg editorial board.

The Bloomberg editorial doesn't stop there, it manages to include wacky Keynesian spending theory to support  its case:
 The studies find minimum-wage increases even provide an economic boost, albeit a small one, as strapped workers immediately spend their raises. 
Yup, according to one of the largest financial news organisations in the world, it is not the production of goods that increases a countries standard of living, it is spending and less saving. I would like to see Bloomberg use this approach in their business. Why don't they stop capital investments and just give pay raises to its employees with the money budgeted for capital expenditures?


  1. I had a good laugh when i read this. This sounds like an article based on Alan Krueger's idiotic and disproven thesis on minimum wage.

  2. "Why don't they stop capital investments and just give pay raises to its employees with the money budgeted for capital expenditures?"

    And then the idiots would FINALLY go out of business! Thank God!

  3. If raising the minimum wage does not cause minimum wage jobs to become scarce then we should obviously raise it to at least $1,000 per hour.

  4. Did you read the comments to the editorial? Bloomberg is simply catering to their ignorant readers. Since when has journalism had anything to do with facts?